Question

Refer to the information for Morning Dove Company in E5-2. Morning Dove Company’s owner, Sylvester, believes that he can sell 2,000 birdbaths during the month of April and has predicted a net operating income of $6,820 as shown in the following contribution margin statement:
MORNING DOVE COMPANY
Contribution Margin Income Statement
Expected for ........... 2,000 Units
Sales revenue (2,000 3 $25.00) ... $50,000
Less: Variable costs (2,000 3 $19.50) .. 39,000
Contribution margin (2,000 3 $5.50) ... $11,000
Less: Fixed costs ......... 4,180
Net operating income ....... $ 6,820

Required:
Explain to Sylvester why his prediction is incorrect. Be specific about his incorrect assumptions and give him as much detail as possible about what the accurate contribution margin statement would show.



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  • CreatedFebruary 27, 2015
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